January 29, 2018
3 Tax Warnings for Small Business Owners
Folks, it’s tax time. It’s not our favorite but its inevitable and must file and pay the piper. Here are 3 things you should watch out for during this tax season:
1. Independent Contractors vs Employees. Have you hired either one this year? Do you know why you hired one verses the other? Be careful hiring an Independent Contractor when they should be considered an employee. If your independent contractor meets the legal definition of an employee, you could face penalties. Consider why you are classifying them, research the role you have them in and compare it to the Small Business Administration’s definition or How to hire the right person to be sure you are covered.
2. Be mindful of Home Office Deductions. Many creative entrepreneurs work from home and only from home. Did you know there are 2 ways to deduct home office deductions and they can vary your tax rate by THOUSANDS of dollars? Be sure to research which option is right for you and talk to your tax preparer about which will save you the most money. You can read about your two options here.
3. Are you funding a hobby or running a business? This is a big one for most photographers I know and for most people who are trying to sell their art or service. So which are you and how do you know? According to the IRS website “If an activity is not for profit, losses from that activity may not be used to offset other income.” In English that means that you can’t deduct your camera gear, website, or lunch date with your potential client if it’s a hobby. Again, research is your best defense. Start here: https://www.irs.gov/newsroom/business-or-hobby-answer-has-implications-for-deductions
If you haven’t already, get a good accountant or stick with the same tax preparer each year so they can get to know you and your business. Tax laws and deductions change every year, and especially with each new president. Having someone who knows you and your business can be vital in getting the most savings and benefits each tax season.
And because tax talk can be scary, here’s a photograph of the ocean crashing into the rock beach of Vik, Icland to relax you. 🙂
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